The second tranche (2nd) of the Sovereign Gold Bond (SGB) scheme for 2022-23 will open for subscription on August 22 and will be available till August 26. The issue price for the same will be announced soon.
Regarded as a better alternative than holding physical gold, it's important to understand the SGB and how it works as an investment option.
Here are the key details an investor should know about the SGB:
What is Sovereign Gold Bond (SGB)?
SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds are redeemed in cash on maturity.
They are issued multiple times in a year and RBI fixes a price for each issuance. Users can buy or sell SGBs during the tranche or in the secondary market.
Who is eligible to invest in the SGBs?
A person resident in India as defined under Foreign Exchange Management Act, 1999 is eligible to invest in SGB. Eligible investors include individuals, HUFs, trusts, universities and charitable institutions. Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity.
How it is sold?
These bonds are sold through scheduled commercial banks (except small finance banks and payment banks), Stock Holding Corporation of India Limited (SHCIL), designated post offices, and recognised stock exchanges viz., National Stock Exchange of India Ltd and Bombay Stock Exchange Ltd, according to RBI.
What is the minimum and maximum limit for investment?
The bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the bond is one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by the government from time to time per fiscal year (April – March).
In the case of joint holding, the limit applies to the first applicant. The annual ceiling includes bonds subscribed under different tranches during initial issuance by Government and those purchased from the secondary market.
What are the tenor and exit options?
The tenor of the bond is for a period of eight years with an exit option after the fifth year to be exercised on the interest payment dates.
What is the rate of interest and how is it paid?
The bonds bear interest at the rate of 2.50 percent (fixed rate) per annum on the amount of initial investment. Interest is credited semi-annually to the bank account of the investor and the last interest is payable on maturity along with the principal.
How can a customer apply online?
A customer can apply online through the website of the listed scheduled commercial banks. The issue price of the gold bonds is Rs 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.
What are the benefits of SGB?
The quantity of gold for which the investor pays is protected since he/she receives the ongoing market price at the time of redemption/ premature redemption. The SGB offers a superior alternative to holding gold in physical form. The risks and costs of storage are eliminated. Investors are assured of the market value of gold at the time of maturity and periodical interest.
It is free from issues like making charges and purity in the case of gold in jewellery form.
What is the tax treatment of SGB?
The interest on gold bonds is taxable as per the provision of the Income Tax Act. The capital gains tax arising on redemption of SGB to an individual is, however, exempted. The indexation benefits are provided to long-term capital gains arising to any person on transfer of bond.
Are there any risks of investing in SGBs?
There may be a risk of capital loss if the market price of gold declines. However, the investor does not lose in terms of the units of gold that he has paid for.